Saturday, August 26, 2006


Odds For US Recession Grow

Zee News reports on the Fed meeting. "The US economy is facing uncertainties, both on the degree to which price pressures are contained and how much the economy might slow, IMF chief economist Raghuram Rajan said on Friday."

"'I think this is a time of a fair amount of uncertainty, because certainly there seems to be a shifting in the United States,' he said on the sidelines of a conference here. 'We`re not quite sure if inflationary pressures are contained ... and we are also not sure how far and how quickly housing will slow.'"

"He said there were 'substantial risks on the downside,' mentioning both the slowing housing market and lofty oil prices."

The Vancouver Sun. "The odds of a U.S. recession have increased dramatically, a Canadian bank economist is warning. The bank announced the odds of a U.S. recession have nearly doubled to 40 per cent from the 25 per cent it estimated in the spring. Its announcement came in the wake of further evidence this past week the U.S. housing market is going from boom to bust."

"We have long held the view that a bursting of the U.S. housing bubble would be bearish for the U.S. economy," the bank said in a statement issued at week's end.

It's only a matter of time before the surge in inventories leads to a nationwide decline in home prices that will erode personal wealth at a time when energy bills and debt obligations have hit record highs and that in turn will force consumers to cut spending and rebuild their savings, it said. 'Against this backdrop, we have decided to raise the odds of a U.S. hard landing,' it said."

"That means a recession of two straight quarters 'or worse' of shrinking economic activity, Gignac noted. The odds are still a bit greater the U.S. will avoid a recession, but 'we are close to the edge.'"

"'It's the single biggest risk to the U.S. economy and..we haven't seen the bottom yet,' said Patricia Croft, chief economist with Phillips, Hager and North Investment Management Ltd. 'There may be a bit of a lag but if the U.S. goes down we're going down with them.'"

The Burlington Free Press. "Fresh evidence shows that high energy prices and sagging home values are pinching the main driver of the U.S. economy; the average joe's wallet. Retailers and economists say many Americans are waiting to buy big-ticket items and cutting back on frills. Homeowners are shelving plans to remodel kitchens. Families are dining out less and tightening their budgets."

"'People are taking funds from one area and committing them to another, gasoline and utilities in particular,' said Gregory Miller, chief economist at Sun Trust Bank."

"Psychologically, this creates the opposite of the 'wealth effect' that kept upbeat consumers spending as stock prices rose in the late 1990s and real estate boomed after the recession in 2001, said Robert Weagley, chairman of the personal financial planning department at the University of Missouri."

"Meanwhile, this week's housing numbers show that the real estate market is likely to decline further as the number of unsold homes grows, further pressuring prices downward. 'I rarely find myself in a position where a single data release really snaps my head around,' Miller said. 'I'm beginning to question my assumption that this housing correction will continue to occur in a controlled fashion.'"

The MSM pretty much threw in the towel on housing this past week. IMO, that's a big turning point, as the public will quickly pick up on the now 'official' story. Now we find out if it turns into something worse.
I find some pundits are starting to say recession. not all, just a few. im my opinion, that will grow, just like the hard landing scenario did.
The economy is as psychological an animal as was the housing mania; once sentiment turns, all bets are off. Knowing that, the government and Wall Street will deny the recession as long as possible, just as they denied the housing bubble. Harder to do when the MSM is all over it, though. I look for things to accelerate significantly from here on out.

p.s.: Most HBBer's agree housing peaked mid 2005. IMHO, the recession started then, too, as shown by John Williams' "Shadow Government Statistics".
I'd like to hear the arguments behind the 60% chance of "no hard landing". Improving real wages? Strengthening dollar? None of the "official" rebuttals seems remotely logical.
Take a look at the changing tune of experts. That is the truly mind-boggling aspect. How can "experts" have such wildly different beliefs? They're experts, right? Well, maybe.

Each person has motives for what they are saying. If they are in the media, that means that they are getting their salaries from advertising, when it is all said and done. FOX, CNBC, or whatever don't make the enormous amounts of money from the 40 dollars we pay in cable. They make a lot of it from all the companies that sell various things that pay for commercials. It is the same with sports. We pay 100 dollars for a pair of shoes because they pay football players (name the sport) a lot of money to be their spokesperson. With consumers spending less (which believe it or not is in a lot of cases debt), there goes there source of funds.

My point is that we won't hear there is trouble from the media (in most cases at least) until there is absolutely no denying it. You'll hear it on blogs from concerned Americans who think for themselves. It just isn't that hard to connect the dots. As more people realize that their savings in banks are going to purchase overpriced homes, we'll see PM continue to increase. Where else are you going to put it?
There will be a key series of events that successively turn people on to PMs.

1) Housing decline.
2) Stock market decline.
3) Banking & finance failures.
4) Bond selloff.
5) Rampant inflation.

Each of these in turn will shut off every presumably "safe" investment people have come to know these past decades -- real estate, stocks, banks, bonds, treasuries, etc. Once everyone wakes up to the time-tested value of PMs, they'll be forking over all their assets to buy them from us.
"Each of these in turn will shut off every presumably "safe" investment people have come to know these past decades "
That's a great point TJ.
You just show the scenerio in which people slowly turn their heads toward the gold.
This is exactly how it will play out for gold up to third faze and gold blow out.
One note TJ.
Stock market may not decline in nominal values and most likely won't. They will be pumping money there like crazy.
But it doesn't matter.
Give the stock market mediocre returns for 3-5 years and people start looking somewhere else.
Given the consolidation of weath these years they will do everything in their power to keep a lid on it...until something explodes that is.....then it's hard to get the toothpaste back in the tube. Until then it's ping pong....
Could you imagine what wage "inflation" would look like if you excluded CEO's and hedge fund managers?
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